Lower Home Loan Limits Meaningless, QRM Huge

August 4, 2011 1 Comment »

real estate

So as you may or may not know, depending on how involved you are in the mortgage/real estate industry, the temporarily inflated conforming loan limits are slated to fall come October.

They’re currently as high as $729,750 in high-cost regions of the nation such as Los Angeles, but will drop to a maximum of $625,500.

While that number is still higher than the traditional conforming loan limit, which should be a much lower $417,000, if not less, given the recent home prices declines, it’s still ruffling feathers.

The National Association of Realtors has already lost their sh*t over this, as anything that will possibly hurt the already ailing housing market should be avoided at all costs, right?

NAR’s basic argument is that those with larger loan amounts will have to chase after jumbo financing, which is harder to come by and also more expensive.

And they’re right – jumbo loans carry with them higher mortgage rates, but that’s just how risk works.

Here’s the thing though. A new data dump released by Lender Processing Services (LPS) today revealed that just one (1) percent of loan originations over the past three years would be affected by the loan limit change.

Sure, the number could be skewed some, as most sales over the past three years have been distressed, foreclosures, short sales, and the like, in hard-hit areas where jumbo financing typically doesn’t come into play.

But still, one percent is pretty darn low on a scale from 1-100. So maybe it’ll affect a handful of buyers and refinancers, but not enough borrowers to justify holding the limit in its inflated place.

Qualified Residential Mortgages Are a Bigger Deal

On the other hand, LPS also noted that so-called Qualified Residential Mortgages could make a huge impact on the mortgage and real estate market.

Their data revealed that nearly half of all loans originated in the United States since 2005 would have been ineligible under the proposed QRM standards.

It’s no surprise really, as the rules are pretty strict. They include 20 percent minimum down payments for purchase-money mortgages, and a staggering 30 percent in home equity for a cash-out refinance.

But those behind the QRM supposedly designed them to pay a small role, so this makes sense.

The problem, however, is the fear that non-QRM mortgages will be priced a percentage point or so higher, which will clearly cause an uproar.

That explains why the same trade groups are opposed to the QRM rule as written as well.

Either way, both these initiatives face major resistance.

Oh, and by the way, the average loan in foreclosure has been delinquent for a record 587 days.

One Comment

  1. John August 5, 2011 at 1:32 pm -

    I’ve been following this blog with interest for months now, but I’ve come to the realization that the reporting and numbers in the general media don’t reflect what is happening here in Phoenix.
    There is continual moaning about falling house prices, double-dip and sluggish markets.
    Nothing could be further from the truth here in Phoenix. We have put in, what we thought were, competitive offers on several homes to find that we weren’t even close to being considered.
    There’s a LOT of cash out there just gobbling up houses within days of them going on the market. We offered on a house at listed value, sight-unseen, on the day it listed, and weren’t even close.
    I think the general media is lagging what is happening in the real estate market at the moment.
    Cheers,
    John

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